<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

[X]  Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
     Act of 1934
     For the fiscal year ended December 31, 1999

[ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934
     Commission file number 333-19285

                            MPR HEALTH SYSTEMS, INC.
                 (Name of Small Business Issuer In Its Charter)

            California                                      95-4089525
  (State or Other Jurisdiction                           (I.R.S. Employer
of Incorporation or Organization)                      Identification  No.)

                         3710 South Robertson Boulevard
                          Culver City, California 90232
              (Address of Principal Executive Offices and Zip Code)

                                 (310) 559-5500
                (Issuer's telephone Number, Including Area Code)

Securities registered under to Section 12(b) of the Exchange Act:

                                              Name of Each Exchange
          Title of Each Class                 on which Registered
                                      None

Securities registered under to Section 12(g) of the Exchange Act:
                                      None

       Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.

                         Yes  [x]              No  [ ]

       Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]

Revenues for the fiscal year ended December 31, 1999: $55,965 At March 31, 2000
the aggregate market value of the voting stock held by non-affiliates of the
issuer was $14,285,506. At December 31, 1999 the issuer had 9,723,370 shares of
Common Stock, no par value, issued and outstanding.

Transitional Small Business Disclosure Format (check one): Yes [ ]  No [X]

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None


                      ITEMS OMITTED PURSUANT TO RULE 12b-25
                                      None


<PAGE>   2


Table of Contents

<TABLE>
<CAPTION>
Part I
<S>                        <C>
       Item 1.             Description of Business
       Item 2.             Description of Property
       Item 3.             Legal Proceedings
       Item 4.             Submission of Matters to a Vote of Security Holders

Part II

       Item 5.             Market for Common Equity and Related Stockholder
                           Matter
       Item 6.             Management's Discussion and Analysis or Plan of
                           Operation
       Item 7.             Financial Statements
       Item 8.             Changes in and Disagreements with Accountants and
                           Financial Disclosure

Part  III

       Item 9.             Directors and Executive Officers, Promoters and
                           Control Persons; Compliance with Section 16(a) of the
                           Exchange Act
       Item 10.            Executive Compensation
       Item 11.            Security Ownership of Certain Beneficial Owners and
                           Management
       Item 12.            Certain Relationships and Related Transactions
       Item 13.            Exhibits and reports on Form 8-K
</TABLE>

SIGNATURES

FINANCIAL STATEMENTS AND SCHEDULE


<PAGE>   3


PART I

Item 1.       Description of Business.

History and Prior Activities

       MPR Health Systems, Inc. (the "Company") is a development stage company
which was formed in 1988 to develop and bring to market a new patented medical
information system called Muscle Pattern Recognition ("MPR"). The Company,
headquartered in Culver City, California, was incorporated in California in
January 1987 as AREX, Inc. The name was changed to Devion Group, then to Myo
Diagnostics, Inc. in September 1989, then to MPR Health Systems Inc. in March
2000.

       The Company held a 97.2% general partnership interest in Myo Diagnostics,
Ltd. (the "Partnership"), a California partnership, that began operations in
April 1991. The Partnership researched and developed the hardware and related
software to perform Muscle Pattern Recognition pursuant to a license agreement
with Toomim Research Group ("TRG"), a partnership of three of the Company's
shareholders, which holds a United States patent on the MPR technology. In
December 1994, the Partnership's assets (including the license agreement) and
liabilities were transferred to the Company at their book value and neither the
Partnership nor the Company recognized any gain or loss. The 2.8% partners
exchanged their interests in the partnership, totaling $547,885, for 755,330
shares of Common Stock of the Company and notes in the aggregate principal
amount of $175,000. The business combination was recorded in a manner similar to
a "pooling-of-interest" method of accounting. Under this method, assets and
liabilities of the Partnership were recorded at historical cost.

General

       The Company was formed to develop and bring to market a new patented
medical information system called Muscle Pattern Recognition ("MPR"). MPR
analyzes patterns of muscle recruitment--the engagement of muscles in order to
perform a specific body movement--to provide objective evidence of muscle
dysfunction which assists in the diagnosis of muscle injury. It can identify
affected muscle sites, determine the existence of muscle dysfunction, and
measure its severity. The results of an MPR evaluation are presented in a
comprehensive report that is generated at the Company's central processing
facility.

       The Company believes that the capabilities of its MPR System are unique
and the MPR System addresses an unmet market need that has become even more
pressing in view of the cost-consciousness of the present health care
environment. The MPR System supports the cost-containment and risk management
goals of insurers and managed care providers by giving them means to measure
treatment outcomes, to eliminate unnecessary care, and to detect outright fraud.
It can serve as a forensic medical tool in medical/legal cases and reduce the
exposure of insurers of disability and workers compensation risks.


<PAGE>   4


       MPR's scientific foundation originates from the research of Dr. Hershel
Toomim, one of the founders of the Company. Over the ten-year period that
preceded the formation of the Company, Dr. Toomim did extensive research on the
patterns of interactions occurring between the various muscles that participate
in the execution of a movement. Central to the MPR concept is the discovery of
movement-specific patterns that can be captured by simultaneously recording the
electromyographic ("EMG") signals of all participating muscles. The comparison
of a patient's patterns with those of "normal" subjects, using an expert system
(described in greater detail below), is the basis of the evaluation. Up until
now, the Company has focused its development efforts on the back and neck muscle
application; it plans to address other muscle groups in the future.

       The first MPR system prototype capable of measuring simultaneously up to
14 muscle sites was Alpha and Beta tested in early 1990. A limited market test
was initiated in September 1990 in Southern California, through a non-exclusive
mobile diagnostic distributor. The Company certified four technologists and
approximately 300 patients were tested through June 1991. The Company appointed
in-house and independent sales representatives to expand the market test. These
market tests served to establish the prerequisites necessary to commence
marketing the product. These prerequisites included: an independent scientific
validation of the system, conclusive clinical studies, a demonstration of the
successful use of MPR information as medical/legal evidence, and the publication
of papers in peer reviewed journals. In the opinion of management, these
prerequisites have been met. See "Product--Scientific Validation of the System"
and "--Legal Validation of the System."

Market

       Market Environment. The United States health care delivery and payment
systems have been undergoing profound changes over the past few years. These
changes have been driven by the determination of employers to halt the alarming
escalation of health care spending, by the concerns of the health care industry
over the threat of regulatory controls, and by a general awareness that major
flaws plague the system. "Liability System Incentives to Consume Excess Medical
Care," a study by the RAND Corporation Institute for Civil Justice, found an
estimated 59% of the costs submitted in support of soft injury claims for auto
accidents was excess. This study further indicated "the implications of this
analysis reached far beyond auto insurance premiums. Our data clearly suggests
that large amounts of medical resources are being unnecessarily consumed." Lead
by managed care providers, the re-engineering of the industry has brought a new
focus on the cost- effectiveness of services and procedures. Capitated payment
plans have reversed the financial incentives of managed care providers, and
insurers of traditional indemnity plans have had to adopt similar
cost-containment techniques to compete.

       Management believes these trends will benefit the Company as MPR can
facilitate cost-containment: by providing a means to objectively diagnose a
condition to aid in the selection of the most appropriate treatment course, a
means to measure outcomes which can prevent overuse, and a means to detect fraud
in workers compensation, personal injury, and disability cases involving back
injury.


<PAGE>   5


       Back Muscle Diagnostic Market. Back pain and back muscle injuries from
automobile, sports and work related accidents affect a large number of
individuals. In 1997, back injuries represented the largest cause of workdays
lost (25% of all non-fatal occupational injuries and illnesses involving days
away from work) according to the United States Department of Commerce, Bureau of
Labor Statistics (April 1999). According to Physical Therapy, April 1999 Vol.
79. No. 4, pp 385-395, it is estimated that the prevalence of lower back pain of
greater than two weeks' duration is 5.6% of the adult population of North
America (roughly 10 million people) at any given point in time. According to the
American Academy of Orthopedic Surgeons, 1998, back pain is the second leading
cause of absenteeism from work, after the common cold. In an April 1999 article,
the peer-reviewed journal SPINE (Vol. 24, No. 7, pp 691 - 697) estimated that,
based on statistics taken from the Bureau of Labor, $8.8 billion was spent on
low back pain claims in 1995. The Company believes that the United States offers
as many annual examination opportunities for MPR as it does for MRI. According
to Market Intelligence Research Company Annual Report (1993), there are in
excess of seven million MRI examinations per year.

Business Strategy

       The Company's goal is to establish MPR as a widely recognized and
accepted medical procedure, and to capitalize upon the full potential of this
technology by developing protocols for other applications.

       Market Awareness. The Company's success will depend in substantial part
upon its ability to establish MPR as a standard medical practice for diagnosis
of muscle dysfunction. In addition to its sales and marketing plans, the Company
intends to sponsor additional clinical studies in the United States and in
select foreign markets, with the expectation that the results will be submitted
for publication in peer-reviewed scientific journals. The Company will be
assisted in these efforts, in part through the activities of the members of its
Medical and Scientific Advisory Board. The Company will encourage these members
to write articles about the MPR technology and present the technology at various
professional conferences. The Company also intends to increase awareness through
trade shows, seminars, professional conferences, scientific presentations and
through its corporate web site: www.mprhealth.com or www.myodx.com.

       The extent to which the Company can create this market awareness may
depend in part upon obtaining additional funding or generating sufficient
revenues from the MPR System. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Cautionary Statements and Risk
Factors--Need for Additional Funding."

Product

       The MPR System is a computer-assisted evaluation procedure that is based
on the simultaneous measurement of electromyographic ("EMG") signals produced by
14 muscles during the execution of a movement. A patient's EMG readings, which
are collected during the examination procedure, digitized, and then processed by
an expert system, can then be converted into graphic "images" of recognizable
muscle patterns. A computer-assisted comparison of a patient's patterns with
those produced by normal subjects reveals differences that are the basis of the
diagnosis.


<PAGE>   6


       The MPR System consists of three components:

       *      The Data Acquisition Device;
       *      the MPR Diagnostics Expert System, and
       *      the MPR Diagnostics Muscle Pattern Recognition Report.

       The data acquisition device consists of a set of 33 cutaneous electrodes
connected to the data acquisition device. The electrodes, which are commercially
available, pick up the EMG signals produced by muscles and feed them into the
device whose design provides for the simultaneous reception of up to 16 EMG
signals.

       The data acquisition device is commercially available, and the Company
presently purchases the device from an unaffiliated manufacturer. In the event
that the data acquisition device is not available from a third party, the
Company could manufacture the module itself using commercially available
components (and, in past years, did manufacture such device).

       Proprietary software is installed in the data acquisition device that
provides features to analyze the quality of the signal received from each
electrode and recognizes and warns the technologist/operator of any malfunction,
thereby ensuring that data reflects accurate EMG measurements. The data
acquisition device also assists the operator by signaling the beginning and end
of each movement through visual prompts and audio tones, and by providing a
real-time feedback on the patient's performance through a graphic display. The
software also accepts the data and prepares it for electronic transmittal to the
company's headquarters.

       After affixing the electrodes on the skin of the patient's back at
carefully selected muscle sites, the patient is directed to execute four
repetitions of each of nine specific movements. Fourteen muscle sites are
associated to each movement and report to the data acquisition device during the
execution of such movement. Their repetitions are important for the protocol. To
convert these parallel inflows of signals into digital patterns ("images"), the
data acquisition device processes some 75,000 data points and calculates these
points' relationships to each other.

       Technologists who perform the tests on the patient are presently required
to receive two weeks training from the Company. No special governmental or
regulatory license or approval is required for the technologists to perform the
service.

       The Expert System. The data collected during the examination is submitted
to the Company for processing. A report is generated which includes graphic,
statistical and narrative representations of each muscle group's pattern
compared to the pattern of a normative database of non- injured and pain-free
subjects. The normative data has been collected utilizing the same protocols
performed by the patient. The normative database is periodically updated as more
data is collected. The report that is produced is reviewed to ascertain that the
data was properly collected and processed.


<PAGE>   7


       The system of statistical analysis used in the MPR evaluations is based
on well-established principles of statistics which indicate that data which
falls two standard deviations or more from the mean value of the data base to
which it is compared has a statistical certainly of 95%-99% depending upon how
far beyond two standard deviations the data falls. The MPR System requires that
this phenomenon occur in multiple instances before it is considered to be
significant for further analysis. This assures that there is a very high
probability that the data is significant and a very low probability of falsely
identifying an artifact as being significant.

       The Muscle Pattern Recognition Report. The MPR Report provides the
physician with findings to classify the patient as normal or with a graded level
of muscle dysfunction. It provides four critical statements about the muscle
groups examined, along with detailed information supportive of these
conclusions:

Evidence of dysfunction:         Reports if muscle recruitment
                                 is normal or abnormal and, if abnormal, the
                                 location of the abnormality.

Frequency and severity of
the dysfunction:                 The severity of the dysfunction as compared to
                                 normal and the frequency it occurs during the
                                 nine movements.

The patterns of abnormal
Muscle recruitment:              Graphic presentation of the
                                 abnormal muscle patterns including the patterns
                                 of muscle compensation.

The bio-mechanical
explanation of the abnormal
muscle compensation:             Describes the reason for the functional
                                 adjustments made during movement.

       Patients may be retested to measure progress and treatment and to assist
the physician in making a decision for discharge. Such retests are not normal,
but are done at the discretion of the physician. When a patient is retested to
ascertain if additional treatment is advisable and the second MPR evaluation is
compared to the baseline test, several other critical questions are addressed:

       *  Is the patient's muscle recruitment pattern now within the range of
       normal?

       *  If still dysfunctional, has the patient progressed through
       treatment?

       *  Should the insurance Company continue to fund further (or different)
       treatment?


<PAGE>   8


       These questions address the issues of rehabilitation and short and long
term disability that affect insurance reserves.

       Scientific Validation of the System. In May 1992, Dr. Norman Carabet
completed an independent study of the Company's evaluation methodology. The
study determined that the overall classification accuracy of normal subjects was
90%. In a further cross validation study involving 196 subjects, the results
confirmed the stability of the database.

       In June 1992, Dr. Carabet completed a second clinical study. This study
showed a high correlation between the Company's evaluation of doctor- diagnosed
injured accident and Workers Compensation patients and the doctors' diagnoses.
The results were particularly impressive because the test was able to detect
injuries after a one to four week time lapse between the doctor's diagnosis and
the Company's examination. A test/retest study of 40 of these patients indicated
that 82% of the patients improved over a four- week period. The retest also
validated the accuracy of the Company's classification.

       Dr. Carabet received an option to purchase 15,000 shares of Common Stock
for $750 for the provision of facilities and services in connection with these
studies. The Company does not believe this affected his independence for
purposes of the studies.

       The Company's MPR technology was submitted to leading academicians and
clinicians. Dr. V. Reggie Edgerton of UCLA and Dr. Steven Wolf of Emory
University reviewed the technical aspects of the MPR System in detail and
confirmed the validity of the science behind the MPR technology. They have
authored three published articles relating to the Company's MPR technology,
entitled "Evaluating Patterns of EMG Amplitudes for Back and Trunk Muscles of
Patients and Controls," International Journal of Rehabilitation and Health, Vol.
2, No. 1 (1996), "Theoretical Basis for Patterning EMG Amplitudes to Assess
Muscle Dysfunction," Medicine and Science in Sports Exercise, Vol. 28, No. 6
(1996), and AEMG activity in neck and back muscles during selected static
postures in adult males and females, physiotherapy Theory and Practice, (1997)
13, 179-195.

       Dr. Edgerton and Dr. Wolf are members of the Company's Scientific
Advisory Board and receive fees for attendance at meetings of that Board. See
"Management -- Scientific Advisory Board." They have also received consulting
fees on specific projects for the Company.

       Legal Validation of the System. In 1993, the California Workers
Compensation Appeals Board ("WCAB") issued a decision that the Company had ". .
 . persuaded the Court as to the validity of the lien-claimant's [Myo
Diagnostics] methodology and mechanism" and that "it found that the procedure
(muscle pattern recognition) is a valid and useful diagnostic medical tool when
used in the proper case. . . ." This determination was in connection with an
action pursuant to which an insurance carrier had sought refund of payments made
to a provider who had submitted claims for use of the MPR System (and the WCAB
denied the insurance company such refund). The Company believes that this
opinion helps to validate MPR as a valid medical/legal procedure.


<PAGE>   9


       No court or administrative body other than the California Workers'
Compensation Appeals Board has examined the validity or invalidity of the MPR
System.

Competition

       The Company believes it has no direct competition and that no other
system in use today is capable of delivering information similar in content,
comprehensiveness and reliability to the Company's MPR system. EMG signals have
been used by others to evaluate muscles at rest and muscles that do not have
kinesiological relationships; but the Company believes that these methodologies
are not supported by scientific studies and are not reliable. The Company
believes that Magnetic Resonance Imaging ("MRI") does not compete with MPR
because it cannot measure interactive muscle relationships when the muscles are
under constant tension. MRI's use in relation to back problems is primarily to
diagnose disk injuries.

       However, there are many companies, both public and private, which are
active in the field of medical diagnostic imaging. Most of these companies have
substantially greater financial, technical and human resources, have a
well-established name, and enjoy a strong market presence. There is no assurance
that one or several such companies are not currently developing, or will not
start developing, technology that will prove more effective or desirable than
the Company's technology. Such occurrence could severely affect the Company's
ability to establish and develop a market presence and to maintain its
competitive position.


Marketing and Distribution

       Market Awareness. The Company's success will depend in substantial part
upon its ability to establish MPR as a standard medical practice for diagnosis
of muscle dysfunction. The Company hopes to achieve this awareness, in part,
through an active public relations campaign. Company personnel and approximately
20 Independent Sales Representatives ("ISRs") have initiated contacts with
healthcare providers and payors in the application of MPR and the benefits of
its utilization. The Company has also created a web page on the Internet (
www.mprhealth.com or www.myodx.com ) that will encourage easy access to
information about the Company and the procedure. The Company intends to sponsor
additional clinical studies in the United States and in select foreign markets,
with the expectation that the results will be submitted for publication in
peer-reviewed scientific journals. The Company will be assisted in these efforts
through the activities of the members of its Medical and Scientific Advisory
Boards. The Company will encourage these members to write articles about the MPR
technology and present the technology at various professional conferences. The
Company also intends to increase awareness through trade shows, seminars,
professional conferences and scientific presentations.


<PAGE>   10


       The extent to which the Company can create this market awareness will
depend in part upon obtaining additional funding or generating sufficient
revenues from the MPR System.  See "Risk Factors--Need for Additional
Funding."

       Market Targets. The Company's overall market is comprised principally of
two major segments: the medical/legal market, which deals primarily with workers
compensation and personal injury claims, and the physical medicine market.
Initially, the Company will focus primarily on the medical/legal segment. To
this end the Company will target the medical providers that service these
markets such as hospitals, rehabilitation clinics, industrial clinics,
diagnostic centers, physicians, physical therapists and MRI imaging centers.
This group is an important component of the Company's strategy because, in
addition to its capacity to prescribe MPR, it may serve as a delivery vehicle.
The Company will also continue to target firms servicing insurance companies,
HMOs and PPOs, self-insured employers and their third-party plan administrators,
and risk and case management companies.

       Hospitals, independent clinics, diagnostic centers, rehabilitation
professionals and physicians will be recruited as evaluation centers for MPR
evaluations. These providers may become the delivery system for corporate
clients and insurance companies. They may service the medical/legal market and
may later become the sites for entry into the medical back pain and physical
medicine market.

       Insurance Companies are primary targets because their reimbursement
policies and practices have a profound impact on the medical diagnostic
industry; they largely dictate pricing policies, methods of distribution and
growth strategies. Insurance companies are also playing an increasingly
important role as prescribers. For example, recent workers compensation reforms
in California have given insurers more control over treatment regimen. An
insurer can now dictate the treatment of a patient for up to four months.
Because MPR can serve to control direct medical costs and indirect costs such as
lost time, disability claims, and litigation costs, the Company believes that
its procedure will be well received by insurers who may become a major source of
referrals, particularly in the workers compensation market.

       HMOs and PPOs are expected to be of vital importance to the Company due
to their leadership role in the cost containment drive and the considerable
market share they enjoy.

       Self-insured employers paid claims representing 34% of the claims paid in
California for worker's compensation in 1995, according to Table No. 1, 1995
State Wide Totals, Department of Industrial Relations, Office of Self-Insurance
Plans (1996). This could be a significant market for the MPR System.

       Health Care Plan Administrators are large organizations which provide
services to public and private self-insured employers. In their role to manage
private plans, they can influence care strategies and/or treatment selection
criteria, and they may have authority to commit funds for evaluation and
treatment. Most of them have financial incentives to contain costs and limit
payors' exposure related to ongoing treatment and disability.


<PAGE>   11


       Marketing Plan: The Company's objective is to achieve significant and
profitable sales growth through the successful introduction of the MPR
evaluation procedure through three strategic channels:

*      Selling directly through independent sales representatives in the
       United States;
*      Through strategic technology partnerships in foreign markets; and
*      Through targeted strategic partnerships in the United States that can
       leverage the domestic distribution of MPR.

       Independent Sales Representatives: The U.S. market is an untapped market
for the MPR evaluation procedure across all insurance payer lines of health,
disability, personal injury and workers' compensation. Based on 1997 incidence
rates taken from the United States Department of Commerce, Bureau of Labor, the
market for the MPR procedure is estimated at approximately $2.1 billion per
year. This forecast reflects the total amount of insurance reimbursement
projected for the MPR procedure. The Company believes it has no direct
competition into this market and that no other system in use today is capable of
delivering information similar in content, comprehensiveness and reliability to
the Company's MPR system.

       The Company intends on distributing the MPR procedure domestically
through a national network of independent sales representatives ("ISRs"). The
Company believes that by distributing through a network of ISRs, it will be able
to achieve national exposure without assuming the costly overhead of hiring a
large, direct sales force. The Company's agreements with the ISRs will provide
them with exclusive sales territories and a highly competitive commission
structure. As of April 30, 2000, the Company had 16 ISRs. The Company may
maintain a small, direct sales force to supplement the ISR network to assist the
ISRs with accounts that require corporate involvement.

       The Company will direct its sales efforts during the first year toward a
limited, highly targeted group of accounts that have the ability to become MPR
centers capable of distributing the technical component of the MPR procedure.
The Company believes this enhanced distribution network will become a secondary
sales force that will have the ability to influence payers and corporate users.
These centers will be established on the premises of providers of diagnostic and
rehabilitation services and the general physician community that treats injured
patients. ISRs will be selected based on their experience and influence into
these key domestic markets.

       Foreign Distribution: The foreign health care markets targeted by the
Company differ in many ways from the U.S market in terms of structure and
accessibility. In most developed countries, particularly those in North and
South American and the European Union, the various health care markets revolve
around different forms of government national health care, augmented by a second
tier of private insurance. The Company believes access to these markets will be
less complex and therefore introduction of MPR more easily achieved.

       The Company intends to distribute the MPR System into selected foreign
markets through strategic technology partners. These partners will be selected
based on their experience and/or ability to market and sell MPR in their
respective markets, their current product mix (and how MPR fits within that
product portfolio), and their financial strength. The Company will enter into
distribution agreements with these partners which typically will have a minimum
term, provide exclusivity in the territory to the partner for the term, and will
require the partner to make minimum purchases of data acquisition modules and
MPR evaluations and maintain specified levels of quality control.


<PAGE>   12


       The Company believes that it may be required to conduct additional
clinical trials in some of these foreign markets. The Company presently intends
to have these studies funded by its strategic technology partners.

       In December 1999, the Company entered its first agreement with a
strategic technology partner for a foreign market (the United Kingdom).

       Strategic Partnerships in the U.S.: The Company also intends to pursue
strategic partnerships with companies in the United States that offer
opportunities for accelerating the distribution of the MPR System into selected
niche markets. Potential U.S. partners include multi-site diagnostic firms,
medical device companies, imaging companies and insurance companies, as well as
pharmaceutical companies that are currently pursuing strategies to access their
customers by providing products and services that support their existing product
lines. As of April 30, 2000, the Company has no such partners.

Regulatory Requirements

       The data acquisition device used in the MPR System is subject to
regulation by the U.S. Food and Drug Administration ("FDA"). Under the FDA Act,
manufacturers of medical devices must comply with certain regulations governing
the testing, manufacturing, packaging and marketing of medical devices. FDA
clearance to allow commercial sales and use may be acquired by means of a new
pre-market approval ("PMA") application to the FDA or by notification under
Section 510(k) of the FDA Act that the medical device used demonstrates
"substantial equivalence" to devices on the market prior to 1976 or already
approved under PMA applications. A substantially equivalent device requires no
clinical trials such as those needed to establish the efficacy of a drug or
invasive diagnostic system.

       The Company purchases the data acquisition device from Thought
Technologies, Ltd., an unaffiliated manufacturer. The manufacturer has advised
the Company that the data acquisition device used in the MPR system may be used
as a result of notification under Section 510(k) of the FDA Act that it is
deemed to be a substantially equivalent medical device. The Company believes
that its use of the device is in compliance with the intended use of the device
as contemplated by the Thought Technologies, Inc. Section 510(k) notification.
The Company makes no marketing or use claims for the device inconsistent with
such intended use. Any person who distributes a medical device in violation of
the FDA Act is subject to having such distribution enjoined and to civil
monetary penalties.

       If the Company distributes the device, the Company must notify the FDA by
filing two short data entry forms, which forms are not subject to review or
approval by the FDA. The Company has filed these forms.

       In the event that the data acquisition module is not available from a
third party, the Company could manufacture the module itself (and, in past
years, did manufacture such device). The Company's authority to manufacture and
market the data acquisition module would be based upon its notification under
Section 510(k) of the FDA Act that its device was a substantially equivalent
medical device, which notification was accepted by the FDA in 1990.


<PAGE>   13


       The Company believes that no other aspect of the MPR System is subject to
regulation by the FDA.

Intellectual Property

       The Company licenses the right to manufacture, market, sell, distribute
and further develop the MPR System and MPR technology and any related or
derivative technology throughout the world pursuant to an exclusive license with
TRG, a partnership among Gerald D. Appel, Daniel J. Levendowski and Hershel
Toomim. Mr. Appel and Mr. Toomim are directors of the Company, and Mr. Appel is
the principal shareholder and Chief Executive Officer of the Company. The MPR
System and related technology and all additions or modifications thereto remain
the property of TRG, provided, however, that any derivative technology developed
by the Company for purposes other than the evaluation and treatment of muscle
dysfunction in the back, arms and legs ("Derivative Technology") will be the
property of the Company.

       The Company pays royalties to TRG for the use of the MPR technology and
any Derivative Technology as follows: (i) the lesser of $30.00 per use or 10% of
total revenues received by the Company for each of the first 10,000 times the
MPR procedure is ever used, (ii) the greater of $12.50 per use or 5% of total
revenues received by the Company for each use thereafter, (iii) 5% of total
revenues received by the Company for each sale, lease, license or other transfer
of the MPR procedure or related equipment or technology and (iv) 3% of total
revenues received by the Company for each sale, lease, license or other transfer
of the Derivative Technology. The Company is not required to make any payments
on revenues pursuant to (iii) or (iv) to the extent royalties were previously
paid on such revenues pursuant to (i) or (ii).

       The license expires in 2013. The license is terminable by TRG upon 14
days notice (subject to cure during such period) (i) if the Company fails to
observe the terms of the Agreement, (ii) if the Company becomes insolvent or
generally fails to pay its debts when due, (iii) the assignment by the Company
of its property for the benefit of the Company's creditors or the appointment of
a receiver for any part of the Company's property, (iv) the commencement of any
proceedings under bankruptcy or insolvency law by or against the Company and (v)
the sale or other transfer of the license by the Company without TRG's consent.


<PAGE>   14


       If the license is terminated for any reason, the Company becomes subject
to a three-year agreement not to engage in the manufacture, sale or distribution
of the MPR system or any similar product in any area in which the MPR system or
procedure has been sold.

       The Company and TRG rely upon the law of trade secrets, patent protection
and unpatented proprietary know-how to protect the MPR technology. Due to the
rapid technological change that characterizes the medical device industry, the
Company believes that reliance upon trade secrets and unpatented know-how, and
on the continued introduction of improvements and new products, are generally as
important as patent protection in establishing and maintaining a competitive
advantage. TRG was granted a United States patent covering the MPR system, which
expires in 2013.

       The Company presently has no patent protection of the MPR technology
outside the United States. The Company has the right to file patent applications
and attempt to obtain patents in other jurisdictions. To date, the Company has
not done so, in part because of lack of funds. TRG is under no obligation to
patent the MPR technology in any jurisdiction and the Company's determination as
to whether or not to seek patent protection will depend upon a number of
factors, including the likelihood of the issuance of the patent, the Company's
financial resources and marketing plans that include foreign markets. The
Company plans to investigate patent protection of the MPR System in the foreign
markets covered by its strategic technology partnership agreement(s).

Employees

       As of December 31, 1999, the Company had six full time employees
including two involved in research and development and four involved in
administration, operations and marketing.

Item 2.       Description of Properties.

       The Company operates from leased facilities in Culver City, California
consisting of approximately 3,550 square feet. Research and development,
equipment assembly, and report processing activities are centralized to allow
closer control over service and response time, and to better protect the
technology. The current annual base rental for the facilities is $64,644 and the
current term of the lease expires in October 2001.


<PAGE>   15


Item 3.       Legal Proceedings.

       The Company is not involved in any litigation.

Item 4.       Submission of Matters to a Vote of Security Holders.

       There were no matters submitted for approval to the holders of the
Company's outstanding Common Stock.


PART II

Item 5.       Market for Common Equity and Related Stockholder Matters.

Common Stock and Dividends

       There is no public market for the Company's Common Stock. As of March 31,
2000, there were one hundred and nine holders of record of the Common Stock.

Recent Sales of Unregistered Securities

       On January 1, 1999, the Company entered into a three-year employment
agreement with Gerald D. Appel to serve as its President and Chief Executive
Officer. Pursuant to the employment agreement, Mr. Appel was granted three
hundred thousand (300,000) Common Shares of the Company. The shares were issued
in cancellation of $30,000 of deferred salary. The issuance of these shares was
exempt from registration pursuant to Section 4(2) of the Act as a transaction
not involving any public offering.

Dividends

       The Company has never paid any dividends on its Common Stock. The Company
presently intends to retain any earnings for use in its business and does not
intend paying any cash dividends on its Common Stock in the foreseeable future.


<PAGE>   16


Item 6. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

       The Company is a development stage company that has yet to realize any
material revenues. The Company is ready to bring its product to market, but may
need additional funding to implement its marketing plan.

Forward Looking Statements

       The Company may from time to time make "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. When used in
this discussion, the words "estimate", "project", "anticipate" and similar
expressions are subject to certain risks and uncertainties, such as changes in
general economic conditions, competition, changes in federal regulations, as
well as uncertainties relating to raising additional financing and acceptance of
the Company's product and services in the marketplace, including those discussed
below that could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as to the date hereof. The Company undertakes no
obligation to publicly release the results of any revisions to those
forward-looking statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.

Results of Operations

Year Ended December 31, 1999 as Compared to Year Ended December 31, 1998. The
Company incurred net losses of $1,091,866 for 1999 and $793,195 for 1998.

Revenues increased from $9,339 for 1998 to $55,965 for 1999. Revenues in both
periods consisted primarily of fees for performance of MPR evaluations. The
Company performed more MPR evaluations in 1999 due to the completion of the
development of the MPR System and an increase in marketing.

During 1998, the Company adopted a change in the method of accounting for the
costs associated with certain research and development costs related its
product. Certain of these research and development costs are now being
capitalized in accordance with SFAS No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed. Previously, the Company had
expensed all research and development costs. As a result of this change in
accounting for research and development costs, the Company now capitalizes costs
previously expensed.

The Company's operating expenses increased to $794,849 during 1999 from $761,063
during 1998. Technical expenses and research and development costs were $103,591
and $44,796, respectively, greater in 1999 than 1998 primarily as a result of
the change in method of accounting for research and development costs. Sales and
marketing expenses for 1999 increased by $42,000 compared to 1998 as the Company
focused much of its efforts on sales and marketing. During the year ended
December 31, 1999 compared to the year ended December 31, 1998, general and
administrative expenses decreased to $482,278 from $638,879 respectively. This
decrease was principally as a result of reallocating certain expenses based on
the change in method of accounting for research and development costs.


<PAGE>   17


During 1999 the Company recorded an extraordinary loss of $258,271 relating to
the issuance of 200,000 shares of Common Stock and options to purchase an
additional 280,000 shares of Common Stock to satisfy obligations relating to
notes payable in the aggregate principal amount of $400,000 and accrued and
unpaid interest by the Company to a commercial bank.

Financial Condition

The Company has funded its operating expenses principally through equity and
debt financings, as the Company has had no material cash flows from operations.
During the year ended December 31, 1999, the Company funded its operations
principally from net proceeds of $698,874 obtained from the sales of Common
Stock.

The Company presently has funds to continue operations at its present level only
through July of 2000. The Company expects modest revenues during this period,
and is exploring the possibility of raising additional capital. If the Company
does not generate sufficient revenues or obtain additional capital by the end of
August 2000, it will be forced to severely curtail operations.

Cautionary Statements and Risk Factors

Several of the matters discussed in this document contain forward-looking
statements that involve risks and uncertainties. Factors associated with the
forward looking statements which could cause actual results to differ materially
from those projected or forecast in the statements that appear below. In
addition to other information contained in this document, readers should
carefully consider the following cautionary statements and risks factors:

Reliance on a Single Product: The Company has only one product, the MPR System.
There is no established market for this product. Accordingly, if for any reason
the MPR System cannot be marketed successfully, the Company would not survive.

Reliance on License: The Company's entire business is based on an exclusive
license of the MPR process and related technology from TRG. See "Business --
Intellectual Property." The license terminates in 2013, but may be terminated
earlier upon the occurrence of certain events including (i) the failure by
Licensee to observe or perform any of its covenants, conditions or agreements
contained within the license. Any termination of the license would have a
material adverse effect on the Company and would likely result in the Company
not surviving.

Development Stage Company with Limited Operating History: The Company is in the
development stage and its operations are subject to all the risks inherent in
launching a new business enterprise, in developing and marketing a new product
or service, and in establishing a name and a business reputation. The likelihood
of success of the Company must be considered in light of problems, expenses,
difficulties and delays frequently encountered in converting prototype designs
into viable production designs, and in achieving market acceptance with a new
type of product or service. The Company has had limited revenues to date, has
operated at a loss since inception, and, because it is only now entering its
commercial stage, it will likely sustain operating losses for an indeterminate
time period. There can be no assurance that the Company will ever generate
material revenues or that the Company will ever be profitable.


<PAGE>   18


New and Uncertain Market: Until now, muscle injuries have always been diagnosed
and evaluated subjectively by physicians through physical examination.
Accordingly, there is no established demand for a computer assisted procedure to
assist in the diagnosis of such injuries, and it is difficult to predict if, and
when, the procedure will gain wide acceptance by prescribers. A prerequisite to
success will be the ability of the Company to establish MPR as a standard
medical practice for use in the diagnosis of muscle dysfunction. The Company
believes it will take a minimum of three to five years for such awareness to be
achieved, if it can be achieved at all. Factors that may affect market
acceptance could include resistance to change, concerns over the lack of track
record of the procedure, and the risk for insurance companies to use the results
of the procedure to challenge or overrule the diagnostic or treatment decisions
of a physician.

Need for Additional Funding: To create market awareness of its MPR System, the
Company will need to devote significant resources to marketing and sales. The
Company's plan is to develop market awareness partially through a public
relations campaign, including attendance at trade shows and professional
conferences, scientific presentations and clinical studies. The Company believes
its success may depend, in part, on the Company's ability to conduct additional
clinical studies. In addition, and very critical to this process, will be direct
contact with payors (primarily insurance companies, HMOs and PPOs) and providers
(including physicians, rehabilitation professionals, hospitals and diagnostic
clinics) to create awareness of the MPR System and to educate them as to its
benefits and clinical applicability. To fully implement its marketing plan in
2000, the Company estimates it will need an additional $1.0 million to $1.5
million of funding. The amount of funding, if any, the Company receives in 2000
will partially determine the degree to which it can implement its marketing
plan.

The Company may obtain additional funding primarily through private placements
of debt and/or equity securities with strategic partners or others. In addition,
the Company could obtain funds through development funding from and/or advance
sales to strategic partners. To date, the Company has no commitments for these
additional funds. The issuance of additional debt or equity securities by the
Company could have the effect of impairing the rights of existing shareholders.
For example, the Company could issue securities senior to the Common Stock in
liquidation (such as debt securities or preferred stock), with preferential
voting rights, or which limit or restrict the payment of dividends. In addition,
the Company could issue securities at prices that are dilutive to the existing
shareholders.


<PAGE>   19


Intellectual Property: TRG holds a United States patent on the MPR technology,
and the Company is the exclusive licensee of the rights under the patent. The
Company believes that its ability to be successful will be contingent on its
ability to protect the MPR technology, its future developments and its know how.
There can be no assurance, however, that this patent will provide substantial
protection of the MPR technology or that its validity will not be challenged.
Pursuant to its license agreement with TRG, the Company has the right to protect
the MPR technology.

The Company presently has no patent protection of the MPR technology outside the
United States. The Company has the right to file patent applications and attempt
to obtain patents in other jurisdictions. To date, the Company has not done so,
in part because of lack of funds. TRG is under no obligation to patent the MPR
technology in any jurisdiction and the Company's determination as to whether or
not to seek patent protection will depend upon a number of factors, including
the likelihood of the issuance of the patent, the Company's financial resources
and marketing plans.

Competition: The Company believes that there is no competitive diagnostic
technology in use today capable of detecting, locating and evaluating soft
tissue muscle injuries in a manner similar to the MPR System. However, there are
many companies, both public and private, which are active in the field of
medical diagnostic imaging. Some of these companies have substantially greater
financial, technical and human resources, have a well-established name and enjoy
a strong market presence. There is no assurance that one or several such
companies are not currently developing, or will not start developing, technology
that will prove more effective or desirable than the Company's technology. Such
occurrence could severely affect the Company's ability to establish and develop
a market presence and to maintain its competitive position.

Dependence on Third Parties: The success of the Company will depend, in part, on
insurance companies and managed care organizations paying for or reimbursing for
MPR evaluations. To date, over 60 insurance companies have reimbursed patients
who have been diagnosed using the MPR System. However, this has been a limited
sample in that the Company's experience is based solely on clinical tests and
test marketing. No assurance can be given as to what extent, if at all,
insurance companies will continue to reimburse for MPR evaluations.

Dependence on Key Management Personnel: The Company is substantially dependent
upon the experience of Gerald D. Appel, President, Chief Executive Officer and
founder of the Company. The loss of the services of Mr. Appel could have a
material adverse impact on the Company and its business unless a suitable
replacement for the individual is found promptly, but there is no assurance that
such replacement can be found.


<PAGE>   20


Product Liability: The Company may be subject to substantial product liability
costs if claims arise out of problems associated with the use of the Company's
MPR System. While the Company maintains insurance against such potential
liabilities, there can be no assurance that such product liability insurance
will adequately insure against such risk.

Control by Management: Gerald D. Appel owns beneficially 3,410,019 shares of the
Common Stock (which includes voting rights with respect to 111,900 shares),
representing 35.8% of the outstanding voting power of the Company as of December
31, 1999. As of December 31, 1999, all directors and officers of the Company
(including Mr. Appel) currently had voting power with respect to 41.1% of the
outstanding Common Stock. Accordingly, Mr. Appel, individually, and all
directors and officers as a group, have the power to control the election of
directors, and therefore the business and affairs of the Company. See "Principal
Shareholders." This concentration of stock ownership may have the effect of
delaying or preventing a change in the management or control of the Company.

Preferred Stock: The Company is authorized to issue up to 10,000,000 shares of
Preferred Stock, issuable in one or more series, the rights, preferences,
privileges and restrictions of which may be established by the Company's Board
of Directors without stockholder approval. As a result, in the future, the
Company could issue Preferred Stock with voting and conversion rights that could
adversely affect the voting power and other rights of the holders of the Common
Stock. No shares of Preferred Stock are presently outstanding and the Company
has no present plans to issue shares of Preferred Stock.

Absence of a Public Market: Presently, there is no public market for any
securities of the Company. No assurance can be given that any public market will
ever develop for any of the Company's securities. The Company does not presently
meet the requirements for listing securities on any national securities exchange
or the NASDAQ Stock Market. The absence of a public market for the Company's
securities makes an investment in such securities highly illiquid. In addition,
the absence of a public market results in there being no true "market price" for
the Company's securities which would enable investors to determine the value of
their investment.

Forward Looking Statements: The Company may from time to time make "forward-
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. When used in this discussion, the words "estimate", "project",
"anticipate" and similar expressions are subject to certain risks and
uncertainties, such as changes in general economic conditions, competition,
changes in federal regulations, as well as uncertainties relating to raising
additional financing and acceptance of the Company's product and services in the
marketplace, including those discussed below that could cause actual results to
differ materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as to the date
hereof. The Company undertakes no obligation to publicly release the results of
any revisions to those forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.


<PAGE>   21


Item 7.  Financial Statements.

       The response to this item is submitted in a separate section of this
report. See Financial Statements and Schedules on Page [26].


Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

       None.

PART III

Item 9.  Directors and Executive Officers of Registrant.

       The following table sets forth information with respect to each director,
executive officer and key personnel of the Company.

<TABLE>
<CAPTION>
              Name                     Age    Position
              ----                     ---    --------
<S>                                    <C>    <C>
              Gerald D. Appel          63     President, Chief Executive Officer
                                              and Chairman of the Board of
                                              Directors

              Dr. Hershel Toomim       82     Director

              Wayne D. Cockburn        43     Director
</TABLE>

       Mr. Appel has served as President and Chief Executive Officer of the
Company since 1991, and as a director of the Company since inception.  Mr.
Appel is also Chairman of the Board of Directors.

       Dr. Toomim has served as a Director of the Company since he co-founded
it with Mr. Appel in 1988.  Dr. Toomim also served as Vice President of
Research and Development of the Company from 1988 to 1996.

       Mr. Cockburn has served as a Director of the Company since July 1995. Mr.
Cockburn has been employed by Lorus Therapeutics Inc., a Canadian
biopharmaceutical company, since January 1995, and is currently Vice President,
Business Development. From 1994 to 1995 Mr. Cockburn was an investment banker
with McDermid St. Lawrence Chisholm, Ontario, Canada, and for more than the
three years prior to that, he was a securities broker with Midland Walwyn,
Ontario, Canada.

Medical and Scientific Advisory Board

       The Company has a Medical and Scientific Advisory Board ("MSAB") whose
members are physicians who were contacted by the Company based upon their
prominence and expertise in medical fields which the Company believed relevant
to the Company's business, and who accepted invitations to serve upon the MSAB.
The role of the MSAB is to advise on the medical considerations involved in
designing the product, to provide a user/prescriber perspective, and to assist
with the design of clinical trials. The MSAB meets on an ad hoc basis. Members
of the MSAB presently receive $750 for each meeting attended. Certain members of
the MSAB are, and others may become, shareholders of the Company. The MSAB
includes:


<PAGE>   22


Steven L. Wolf, PhD, Chair
Professor and Director of Research, Department of Rehabilitation Medicine,
Emory University School of Medicine, former Chair of the Advisory Council of
the American Physical Therapy Association.

Gunnar B.J. Andersson, MD, PhD
Chairman of Orthopedic Surgery at Rush-Presbyterian-St. Luke's Medical Center
in Chicago, managing partner of Midwest Orthopaedics, past President of the
International Society for the Study of the Lumbar Spine.

Jonathon Fielding, M.D., PhD
Professor of Medicine at UCLA, President of the International Society of
Preventative Medicine, Chief Health Officer for the County of Los Angeles and
consultant to Fortune 100 health care companies.

William Finkle, PhD
Epidemiologist and President of Consolidated Research Inc., providing consulting
services to the major health care companies in matters pertaining to the
epidemiology of disease, data analysis and predictive modeling.

Reggie Edgerton, PhD
Professor and Vice Chairman of the Physiological Sciences Department at UCLA,
Project Program Director evaluating neurophysiological changes in microgravity
for NASA.


<PAGE>   23


Item 10.      Executive Compensation

Summary Compensation Table

       The following table sets for certain information regarding the
compensation of the Company's Chief Executive Officer for the fiscal years ended
December 31, 1999, 1998 and 1997 (no other officer had annual compensation in
excess of $100,000 during any of those years):

                         SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                         Long Term
                                                                        Compensation
                                                                      --------------
                                                Annual                   Number of
Name and                Fiscal Year          Compensation                Securities
Principal Position         Ended         ---------------------           Underlying
Compensation            December 31,     Salary          Bonus             Options
------------------      ------------    --------        ----------    --------------
<S>                     <C>             <C>             <C>           <C>
Gerald Appel,
President and               1999        $150,000        $30,000(1)         375,000
Chief Executive             1998        $116,000        $     0                  0
Officer                     1997        $116,000        $     0                  0
</TABLE>

(1) In addition to salary during the year, the Company issued 300,000 shares of
Common Stock in cancellation of $30,000 of deferred salary.

Employment Agreement

       The Company entered into a three-year employment agreement with Gerald D.
Appel to serve as its President and Chief Executive Officer dated January 1,
1999. Pursuant to the employment agreement, Mr. Appel will be paid an annual
salary (exclusive of benefits, bonuses or incentive payments) of $150,000 per
year. Under the agreement, the Company issued to Mr. Appel 300,000 shares of
Common Stock in consideration of cancellation of deferred salary of $30,000. Mr.
Appel also was granted nonqualified stock options, pursuant to the Company's
1997 Stock Option Plan, to purchase (i) 125,000 Common Shares at an exercise
price of $1.00 per share, expiring January 1, 2006, (ii) 125,000 Common Shares
at an exercise price of $1.50 per share, expiring January 1, 2006, and (iii)
125,000 Common Shares at an exercise price of $2.00 per share, expiring January
1, 2006.


<PAGE>   24


       The employment agreement is terminable by Mr. Appel for any reason, upon
ninety (90) days written notice. In the event Mr. Appel terminates the
employment agreement, he would be entitled to receive salary, benefits and all
bonus and stock options earned up to the date of termination, but unpaid. Mr.
Appel may also be terminated by the Company upon ninety (90) days written
notice. In the event Mr. Appel is terminated by the Company without cause, he
would be entitled to receive the full value of his contract and his employee
benefits would continue for a period of one year after termination.

       The employment agreement also contains certain confidentiality and
non-competition obligations.

Stock Option Plan

       The Company adopted a Stock Option Plan (the "1997 Plan") in December
1997. The purpose of the 1997 Plan is to attract, retain and motivate certain
key employees of the Company by giving them incentives that are linked directly
to increases in the value of the Common Stock of the Company. Each director,
officer, employee or consultant of the Company is eligible to be considered for
the grant of awards under the 1997 Plan. The maximum number of shares of Common
Stock that may be issued pursuant to awards granted under the 1997 Plan is
1,000,000. Any shares of Common Stock subject to an award that for any reason
expires or terminates unexercised are again available for issuance under the
1997 Plan.

       The 1997 Plan authorizes the Board of Directors or a committee of the
Board whose members shall serve at the pleasure of the Board (the
"Administrator") to grant stock options to eligible directors, officers,
employees and consultants of the Company. Stock Options granted under the 1997
Plan may, at the discretion of the Administrator, either be "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or options which do not qualify as "incentive stock
options." The 1997 Plan currently is administered by the Board of Directors of
the Company. Subject to the provisions of the 1997 Plan, the Board will have
full and final authority to select the executives and other employees to whom
options will be granted thereunder, to grant the options and to determine the
terms and conditions of the options and the number of shares to be issued
pursuant thereto.

       As of April 30, 2000, options to purchase an aggregate of 425,000 shares
of Common Stock under the 1997 Plan were outstanding.


<PAGE>   25


                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
                               (Individual Grants)

<TABLE>
<CAPTION>
                         Number of     Percent of Total
                        Securities       Options/SARs
                        Underlying        Granted to          Exercise of
Name and               Options/SARs      Employees in          Base Price         Expiration
Principal Position        Granted         Fiscal Year          ($/share)             Date
------------------     ------------    ----------------       -----------         ----------
<S>                    <C>             <C>                    <C>                 <C>
Gerald Appel,
President and           125,000                                  $1.00             Jan. 1/06
Chief Executive         125,000                                  $1.50             Jan. 1/06
Officer                 125,000              100%                $2.00             Jan. 1/06
</TABLE>

(1) There has not been any public market for the Company's Common Stock. The
Board of Directors believes that the fair market value of the Common Stock on
the grant date did not exceed $1.00 per share.

       No options were exercised during the fiscal year ended December 31, 1999.

Director Compensation

       Members of the Board of Directors receive no cash compensation for such
service. However, each year since 1997, the Company has granted to each of the
Company's outside directors an option to purchase 20,000 shares at an exercise
price of $1.50 per share. Furthermore, the Company has established for future
outside board members an option-based compensation policy for the compensation
of such members of its Board of Directors providing that each newly appointed or
elected outside director will be granted a five-year option, for 20,000 shares
of the Company's common stock, exercisable at the fair market value of such
stock on the date of grant of the option.

       In January 2000, stock options to purchase 40,000 Common Shares at a
price of $1.50 per share expiring January 13, 2005, were granted, in aggregate,
to outside directors of the Company in this regard.


Item 11.  Security Ownership of Certain Beneficial Owners and Management.

PRINCIPAL SHAREHOLDERS

       The following table sets forth as of April 30, 2000, certain information
relating to the ownership of the Company's Common Stock by (i) each person known
by the Company to be the beneficial owner of more than 5% of the outstanding
shares of the Company's Common Stock, (ii) each of the Company's directors,
(iii) each officer named in the Executive Compensation table and (iv) all of the
Company's executive officers and directors as a group. Except as may be
indicated in the footnotes to the table and subject to applicable community
property laws, each of such persons has the sole voting and investment power
with respect to the shares owned. Beneficial ownership has been determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Under this Rule, certain shares may be deemed to be
beneficially owned by more than one person (such as where persons share voting
power or investment power). In addition, shares are deemed to be beneficially
owned by a person if the person has the right to acquire the shares (for
example, upon exercise of an


<PAGE>   26


option) within 60 days of the date as of which the information is provided; in
computing the percentage ownership of any person, the amount of shares
outstanding is deemed to include the amount of shares beneficially owned by such
person (and only such person) by reason of these acquisition rights. As a
result, the percentage of outstanding shares of any person as shown in the
following table does not necessarily reflect the person's actual voting power at
any particular date. The address of each individual listed is in care of the
Company, 3710 South Robertson Boulevard, Culver City, California 90232, unless
otherwise set forth below such person's name.

<TABLE>
<CAPTION>
                                                           Number of   Percent
Name and Address                                             Shares    of Class
----------------                                           ---------   --------
<S>                                                        <C>         <C>
Gerald D. Appel (1)                                        3,621,019     37.2%

Ontario Municipal Employees Retirement Board               1,179,339     12.1%
   One University Avenue, Ste. 1000, Toronto, Ontario

Wayne D. Cockburn (2)                                        190,000      2.0%

Dr. Hershel Toomim, Sc. D. (3)                               252,000      2.6%

All of the directors and executive offers as a group
(3 persons) (4)                                            4,063,019     41.8%
</TABLE>
-----------------------
(1) Includes 111,900 shares with respect to which Mr. Appel believes he has
voting power as a result of a proxy granted by Daniel J. Levendowski.
(2) Includes 60,000 shares of Common Stock which may be acquired currently upon
exercise of stock options.
(3) Includes 60,000 shares of Common Stock which may be acquired currently upon
exercise of stock options.
(4) Includes shares described in footnotes (1) and (2).


Item 12.  Certain Relationships and Related Transactions

       The Company licenses the right to manufacture, market, sell, distribute
and further develop the MPR System and technology and any related or derivative
technology throughout the world pursuant to an exclusive twenty-year license
with TRG, a partnership among Gerald D. Appel, Daniel J. Levendowski and Hershel
Toomim. Mr. Appel is the Chairman of the Board, Chief Executive Officer,
President and a principal shareholder of the Company, and Dr. Toomim is a
director and a principal shareholder of the Company. During 1999, no royalties
were paid to TRG pursuant to the license. See "Description of
Business--Intellectual Property."

       From time to time Gerald D. Appel has loaned funds to the Company. These
loans were payable on demand with interest at the rate of 10% per annum. The
largest amount outstanding to Mr. Appel for these loans at any time since
January 1, 1995 was $90,000. At December 31, 1999, there were no loans
outstanding. During the year ended December 31, 1999, the largest amount
outstanding to Mr. Appel was $39,000.


Item 13.  Exhibits, List and Reports on Form 8-K.

       (a)    Exhibits:

              See Exhibit List.

       (b)    Reports on Form 8-K.

              None.

Supplemental Information to be Furnished with reports filed pursuant to Section
15(d) of the Exchange Act by Non-Reporting Issuers


<PAGE>   27


       As of the date this Form 10-KSB is filed with the Securities and Exchange
Commission, the Company has not provided to its security holders any annual
report with respect to the fiscal year ended December 31, 1998, nor has the
Company sent to more than 10 of its security holders any proxy statement, form
of proxy or other proxy soliciting material with respect to any annual or other
meeting of security holders for the fiscal year ended December 31, 1999.


<PAGE>   28


SIGNATURES

       Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                   MPR HEALTH SYSTEMS, INC.



                                   By:    /s/ GERALD D. APPEL
                                          --------------------------------------
                                          Gerald D. Appel
                                   Its:   President, Chief Executive Officer
                                          and Chairman of the Board
                                          (Principal Financial and Accounting
                                          Officer)

POWER OF ATTORNEY

       Each person whose signature appears below constitutes and appoints Gerald
D. Appel as his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and his name, place and stead, in any
and all capacities, to sign any or all amendments to this Annual Report on Form
10-KSB and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitutes, may lawfully do or cause to be done by virtue hereof.

SIGNATURES

       In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
      Signature                         Title                         Date
      ---------                         -----                         ----
<S>                     <C>                                        <C>
/s/ GERALD D. APPEL       President, Chief Executive Officer       May 31, 2000
----------------------    and Chairman of the Board of
Gerald D. Appel           Directors (Principal Financial and
                          Accounting Officer)

/s/ DR. HERSHEL TOOMIM    Director                                 May 31, 2000
----------------------
Dr. Hershel Toomim


/s/ WAYNE D. COCKBURN     Director                                 May 31, 2000
----------------------
Wayne D. Cockburn

</TABLE>


<PAGE>   29


INDEPENDENT AUDITOR'S REPORT



To the Board of Directors and Shareholders
MPR Health Systems, Inc.


We have audited the accompanying balance sheet of MPR Health Systems, Inc. (a
development stage company) (the "Company"), as of December 31, 1999 and the
related statements of operations, shareholders' equity (deficit), and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly in all
material respects, the financial position of MPR Health Systems, Inc. as of
December 31, 1999, and the results of its operations, stockholders' equity, and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.

As more fully discussed in Note 1 to the financial statements, the accompanying
financial statement disclosures related to the cumulative amounts for the period
from January 5, 1987 (date of inception) to December 31, 1999 are unaudited
because it is impractical to audit the financial statement information for the
first seven years of the Company's existence due to the lack of sufficient
accounting records.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. During the year ended December 31,
1999, the Company incurred a net loss of $1,091,866 and is in the development
stage at December 31, 1999. Recovery of the Company's assets is dependent upon
future events, the outcome of which is indeterminable. In addition, successful
completion of the Company's development program and its transition, ultimately,
to the attainment of profitable operations is dependent upon obtaining adequate
financing to fulfill its development activities and achieving a level of sales
adequate to support the Company's cost structure. These factors, among others,
as discussed in Note 1 to the financial statements, raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.



Dickey, Rush, Duncan, Scott & Co., P.C.
Houston, Texas
May 18, 2000


<PAGE>   30


MPR Health Systems, Inc.
(A Development Stage Company)
BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
                                                       1999            1998
                                                    ----------      ----------
<S>                                                 <C>             <C>
Current Assets
Cash                                                $  281,867      $  240,861
Accounts Receivable, less allowance for
  Doubtful accounts of $758 and $0                       5,985           2,295
Prepaid Expenses & Other Current Assets                 42,864           7,097
                                                    ----------      ----------

   Total Current Assets                                330,716         250,253

Furniture & Equipment, net                              71,828         138,486
Capitalized Product Development Costs
  Muscle Pattern Recognition Software                1,496,895       1,470,875
Other Assets                                            24,608          31,780
                                                    ----------      ----------

   Total Non Current Assets                         $1,593,331      $1,641,141

                                                    ----------      ----------
   Total Assets                                     $1,924,047      $1,891,394
                                                    ----------      ----------
</TABLE>

See accompanying notes and accountant's report.



MPR Health Systems, Inc.
(A Development Stage Company)
BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
                                                     1999              1998
                                                  -----------       -----------
<S>                                               <C>               <C>
Current Liabilities
Accounts Payable & Accrued Expenses               $   297,417       $   363,206
Deferred Revenue                                      275,000
Notes Payable to Bank                                                   270,000
Notes Payable                                          25,000
Loans from Shareholders                                14,000                --
Convertible Debenture Loans                           167,000                --
Current Portion of Capital Leases Payable              15,188            22,018
                                                  -----------       -----------

   Total Current Liabilities                          793,605           655,224

Non Current Liabilities

Convertible Debenture Loans                                             167,000
Loans from Shareholders                                                  39,000
Capital Leases Payable                                 14,750            44,886
Notes Payable                                                            25,000
                                                  -----------       -----------

Total Non Current Liabilities                          14,750           275,886
                                                  -----------       -----------

Total Current Liabilities                             808,355           931,110

Shareholders' Equity (Deficit)
Preferred Stock, no par value
   10,000,000 shares authorized
   No shares issued and outstanding                        --                --
Common Stock, no par value
   50,000,000 shares authorized
   9,723,370 and 8,916,370 issued and
   outstanding                                      7,305,309         6,229,435
Paid In Capital - Options                             316,400                --
Additional Paid In Capital                                              145,000
Deficit Accumulated during Development Stage       (6,506,017)       (4,414,151)
                                                  -----------       -----------

Total Shareholders' Equity                          1,115,692           960,284
                                                  -----------       -----------

Total Liabilities & Shareholders' Equity          $ 1,924,047       $ 1,891,394
                                                  -----------       -----------
</TABLE>

See accompanying notes and accountant's report.


<PAGE>   31


MPR Health Systems, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999 and 1998 and from
   January 5, 1987 (Inception) to December 31, 1999 (Unaudited)

<TABLE>
<CAPTION>
                                           For the Year Ended     Period From
                                              December 31,         Inception
                                         -----------------------    Dec. 31,
                                            1999         1998        1999
                                         -----------   ---------  ------------
<S>                                      <C>           <C>        <C>
Revenues                                 $    55,965   $   9,339  $   164,861

Operating Expenses

   Research & Development                     53,897       9,101    1,128,343
   Technical Services                        119,039      15,448      681,791
   Sales & Marketing                         139,635      97,635      651,443
   General & Administrative                  482,278     638,879    3,707,320
                                         -----------   ---------  -----------
   Total Operating Expenses                  794,849     761,063    6,168,897
                                         -----------   ---------  -----------

Loss from Operations                        (738,884)   (751,724)  (6,004,036)

Other Income (Expenses)

   Interest Expense                          (59,373)    (32,917)    (298,581)
   Miscellaneous                             (35,338)     (6,475)     (41,813)
   Interest Income                                           223      103,786
                                         -----------   ---------  -----------
   Total Other Income (Expenses)             (94,711)    (39,169)    (236,608)

Provision for Income Taxes                                 2,302        7,102
                                         -----------   ---------  -----------
Loss Before Extraordinary Item           $  (833,595)  $(793,195) $(6,247,746)

Extraordinary Item - Loss on Debt
   Restructuring                            (258,271)                (258,271)
                                         -----------   ---------  -----------

Net Loss                                 $(1,091,866)  $(793,195) $(6,506,017)
                                         -----------   ---------  -----------

Basic Loss Per Share                          ($0.11)     ($0.09)      ($0.97)
                                         -----------   ---------  -----------
Diluted Loss Per Share                        ($0.11)     ($0.09)      ($0.97)
                                         -----------   ---------  -----------
Weighted Average Common Shares             9,644,785   8,519,173    6,471,431
                                         -----------   ---------  -----------
</TABLE>


See accompanying notes and accountant's report


<PAGE>   32


MPR Health Systems, Inc.
 (A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999 and 1998 and from
   January 5, 1987 (Inception) to December 31, 1999 (Unaudited)

<TABLE>
<CAPTION>
                                             For the Year Ended
                                                 December 31,             Period From
                                         --------------------------       Inception to
                                            1999            1998          Dec 31, 1999
                                         -----------      ---------       ------------
<S>                                      <C>              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income (Loss)                        $(1,091,866)     $(793,195)      $(6,506,017)

Adjustments to Net Income (Loss):
   Depreciation & Amortization                55,515         62,573           423,841
   Extraordinary Loss on Debt
     Restructuring                           258,271                          258,271
   Bad Debt Expense                                                            26,394
   Loss on Disposition of
     Fixed Assets                              2,891                            2,891
   Stock Options Issued for
     Services Rendered                                                         24,000
   Common Stock Issued in Consideration
     For extension of Repayment Terms for
     Notes Payable to Related Parties                                          75,600
   Common Stock Issued for Services
     Rendered                                                                  12,527

(Increase)/Decrease in:
   Accounts Receivables                       (3,690)        (2,295)          (12,929)
   Other Receivables                           1,643         66,040            67,683
   Prepaid Expenses and Deposits             (32,828)         7,314          (106,790)
   Employee Receivables                        1,275            825           (30,995)

Increase/(Decrease) in:
   Accounts Payable                           (9,823)         7,930           284,243
   Deferred Revenue                          275,000                          275,000
   Other Current Liabilities                 (41,837)       169,140           127,303
                                         -----------      ---------       -----------
   Net Cash Provided (Used) by
     Operating Activities                   (585,449)      (497,528)       (5,078,978)
                                         -----------      ---------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES:

   Investment in Fixed Assets                 (9,289)       (32,763)         (413,982)
   Proceeds from Disposition of
     Fixed assets                             18,856                           18,856
   Software Product Development Costs        (26,020)      (399,075)       (1,496,895)
                                         -----------      ---------       -----------
   Net Cash Provided (Used) by
     Investing Activities                    (16,453)      (431,838)       (1,892,021)
</TABLE>

See accompanying notes and accountant's report.


<PAGE>   33


MPR Health Systems, Inc.
 (A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999 and 1998 and from
   January 5, 1987 (Inception) to December 31, 1999 (Unaudited)


<TABLE>
<CAPTION>
                                               For the Year Ended
                                                  December 31,           Period From
                                             ------------------------    Inception to
                                               1999          1998        Dec 31, 1999
                                             ---------    -----------    ------------
<S>                                          <C>          <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES:

   Issuance of Convertible Debentures                         167,000        167,000
   Net Increase (Decrease) in Notes
     Payables                                                  25,000        295,000
   Net Increase (Decrease) in Notes
     Payables to Related Parties               (25,000)        39,000        238,000
   Repayment (Borrowings) on Obligations
     Under Capital Lease                       (36,966)        (8,747)       (90,316)
   Net Proceeds from Issuance of
     Common Stock                              849,874        645,296      6,643,092
   Increase (Decrease) in Paid-In Capital     (145,000)       145,000              0
                                             ---------    -----------     ----------
   Net Cash Provided (Used) from
     Financing Activities                      642,908     1,012,5494      7,252,866
                                             ---------    -----------     ----------

   Net Increase (Decrease) in Cash              41,006         83,183        281,867

Beginning Cash                                 240,861        157,678              0
                                             ---------    -----------     ----------
Ending Cash                                  $ 281,867    $   240,861     $  281,867
                                             ---------    -----------     ----------


Other Disclosure:
   Income Tax - Paid                         $     800    $     2,302      $   5,600
   Interest Expense                             48,099         32,917        298,530
</TABLE>


<PAGE>   34


<TABLE>
<CAPTION>
<S>                                                                     <C>
Supplemental Disclosure:
Non-Cash Investing & Financing Activities:
   Furniture and equipment acquired under capital leases                112,262
   145,000 shares of common stock issued for conversion of
     paid-in capital
   200,000 shares of common stock issued as part of debt
     restructuring.
</TABLE>


See accompanying notes and accountant's report.

MPR Health Systems, Inc. (A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1999 and 1998
 and from January 5, 1987 (Inception)
 to December 31, 1999 (Unaudited)

<TABLE>
<CAPTION>
                                                                            Deficit
                                                                          Accumulated
                                                                          During The
                               Common         Shares        Paid In       Development
                               Shares         Amount        Capital          Stage              Total
                             ---------      ----------      -------       ------------      ------------
<S>                          <C>            <C>             <C>           <C>               <C>
Issued upon incorporation
  for services                 910,000      $    7,685      $             $                 $     7,685
Issued for services            952,250           9,523                                            9,523
Net Loss from inception
  through 12/31/90                                                             20,367)          (20,367)

Balance - Dec 31/90          1,862,250          17,208         0              (20,367)           (3,159)
Issued for services            305,950           2,404                                            2,404
Issued for cash                 11,230          25,000                                           25,000
Net Loss                                                                     (243,621)         (243,621)

Balance - Dec 31/91          2,179,430          44,612         0             (263,988)         (219,376)
Net Loss                                                                     (258,180)         (258,180)

Balance - Dec 31/92          2,179,430          44,612         0             (522,168)         (477,556)
Issued for cash                 11,230           1,123                                            1,123
Net Loss                                                                     (421,341)         (421,341)

Balance - Dec 31/93          2,190,660          45,735         0             (943,509)         (897,774)
Stock split                  2,190,660               0                                                0
Issued for exchange
  of $174,090 debt             144,619         174,090                                          174,090
Issued for services             60,000             600                                              600
Issued for net assets of
  limited partnership,
  net of related
  expenses of $1,350           755,330         372,885                                          372,885
Issued for cash in a
  Private placement net
  of related expenses
  of $6,600                    245,400         300,150                                          300,150
Issued for cash in a
  Private placement net
  of related expenses
  of $164,036                  680,741         835,964                                          835,964

Net loss                                                                     (821,898)         (821,898)

Balance - Dec 31/94          6,267,410       1,729,424         0           (1,765,407)          (35,983)

Issued for cash                 15,000             750                                              750
Issued for cash in a
  Private placement net
  of related expenses
  of $67,609                   125,000         157,391                                          157,391
Issued for cash in a
  Private placement net
  of related expenses
  of $64,243                   111,111         135,757                                          135,757
Issued for cash                  2,738           5,000                                            5,000
Net loss                                                                   (1,067,280)       (1,067,280)

Balance - Dec 31/95          6,521,259       2,028,322         0           (2,832,687)         (804,365)
</TABLE>

See accompanying notes and accountant's report.


<PAGE>   35


MPR Health Systems, Inc. (A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1999 and 1998
 and from January 5, 1987 (Inception)
 to December 31, 1999 (Unaudited)

<TABLE>
<CAPTION>
                                                                              Deficit
                                                                            Accumulated
                                                                             During The
                                 Common          Shares        Paid In       Development
                                 Shares          Amount        Capital          Stage           Total
                               ----------      ----------      -------      ------------      ----------
<S>                            <C>             <C>             <C>          <C>               <C>
Issued for cash in a
  private placement net
  of related expenses
  of $14,243                   $  500,000      $  985,757      $             $                $  985,757
Issued for cash                    27,778          50,000                                         50,000
Forgiveness of accrued
  expenses                        100,000         100,000                                        100,000
Issued for defaulted
  Notes payable                    42,000          75,600                                         75,600
Stock options exercised            50,000           5,000                                          5,000
Conversion of debt                 25,000          50,000                                         50,000
Issued for cash in a
  private placement
  net of related expenses
  of $169,000                     480,000         982,000                                        982,000
Issuance of stock options               0          24,000                                         24,000
Net loss                                                                        (796,054)       (796,054)

Balance - Dec 31/96             7,746,037       4,300,679             0       (3,628,741)        671,938

Voided shares                      (3,000)              0                                              0
Issued for cash in a
  Private placement net
  of related expenses
  of $66,540                      480,000       1,133,460                                      1,133,460
Issued for cash                   100,000         150,000                                        150,000
Net Loss                                                                        (999,385)       (999,385)

Balance - Dec 31/97             8,323,037       5,584,139             0       (4,620,956)        963,183

Stock warrants exercised           83,333         145,833                                        145,833
Issued for services                10,000               0                                              0
Issued for cash in a
  Private placement net of
  Related expenses
  of $537                         500,000         499,463                                        499,463
Additional Paid-In
  Capital                                                       145,000                          145,000
Net Loss                                                                        (793,195)       (793,195)

Balance - Dec 31/98             8,323,037       5,584,139             0       (4,620,956)        963,183
</TABLE>


See accompanying notes and accountant's report.


<PAGE>   36

MPR Health Systems, Inc. (A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1999 and 1998
 and from January 5, 1987 (Inception)
 to December 31, 1999 (Unaudited)

<TABLE>
<CAPTION>
                                                                                         Deficit
                                                                                       Accumulated
                                                                                        During The
                                    Common            Shares           Paid In         Development
                                    Shares            Amount           Capital            Stage            Total
                                  -----------      -----------       -----------       -----------       -----------
<S>                               <C>              <C>               <C>               <C>               <C>
Stock options exercised                12,000            6,000                                                 6,000
Stock issued in conjunction
  with reclassification
  of capital                          145,000          145,000          (145,000)                                  0
Stock issued for cash in a
  private placement net of
  related expenses
  of $52,626                          450,000          698,874                                               698,874
Stock issued as part of
  Debt restructuring                  200,000          226,000                                               226,000
Stock options issued as part
   Of debt restructuring                                                 316,400                             316,400
Net Loss                                                                                (1,091,866)       (1,091,866)

Balance - Dec 31/99                 9,723,370      $ 7,305,309       $         0       $(4,620,956)      $(1,115,692)
</TABLE>


See accompanying notes and accountant's report


<PAGE>   37

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Line of Business

       MPR Health Systems, Inc. (a development stage company) (the "Company"), a
California corporation, was incorporated and commenced operations on January 5,
1987 as AREX, Inc. On June 15, 1988, the name was changed to Devion Group and
then to MPR Health Systems, Inc. on September 15, 1989. The principal activity
of the Company has been the research and development of Muscle Pattern
Recognition technology. Muscle Pattern Recognition technology provides an
objective evaluation of soft tissue muscle injuries.

Basis of Presentation

       The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, during the year ended December 31,
1999, the Company incurred a net loss of $1,091,866 and is completing the
development stage at December 31, 1999. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Recovery of the
Company's assets is dependent upon future events, the outcome of which is
indeterminable. In addition, successful completion of the Company's development
program and its transition to the attainment of profitable operations is
dependent upon obtaining adequate financing to fulfill its development
activities and achieving a level of sales adequate to support the Company's cost
structure. In view of these matters, realization of a major portion of the
assets in the accompanying balance sheets is dependent upon the Company's
ability to meet its financing requirements and the success of its plans to sell
its products.

       In addition to the capital raised in 1999 and 1998 through private equity
offerings, the Company is negotiating with several investors about raising
additional capital through private placement offerings. Management of the
Company believes that its current cash on hand plus the additional capital that
is expected to be raised in the future will be sufficient to cover its working
capital needs until the Company's sales volume reaches a sufficient level to
cover operating expenses.

Business Combination

       The Company held a 97.2% sole general partner interest in Myo
Diagnostics, Ltd. (the "Partnership"), a California limited partnership, that
began operations on April 18, 1991. The Partnership researched and developed the
hardware and related software to perform Muscle Pattern Recognition. Effective
on December 19, 1994, the Partnership's assets and liabilities were transferred
to the Company at its book value, and neither the Partnership nor Corporation
recognized a gain or loss. The 2.8% limited partners exchanged their interests
in the Partnership, totaling $547,885, for 755,330 shares of common stock and
$175,000 in notes payable. The business combination was recorded in a manner
similar to a "pooling-of-interest" method of accounting. Under this method,
assets and liabilities of the Partnership were recorded at historical cost.

Development Stage Company

       The Company is a development stage company as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by
Development Stage Enterprises." The Company is devoting substantially all of its
present efforts to establish a new business, and its planned principal
operations have not yet commenced. All losses accumulated since inception have
been considered as part of the Company's development stage activities. The
cumulative amounts presented for the statements of operations and cash flows
from the Company's inception are unaudited because it is impractical to audit
the financial statement information for the first seven years of the Company's
existence due to the lack of sufficient accounting records.


<PAGE>   38

Net revenues to date have primarily been from the sale of in-house evaluations
of patients.

Revenue

Revenue is reported at the estimated net realizable amounts from insurance
companies, third parties, and others for services rendered.

Furniture and Equipment

Furniture and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets as follows:

<TABLE>
<S>                                                 <C>
Furniture and equipment                             5 to 7 years
Computer hardware and software                      5 years
</TABLE>

Leasehold improvements are amortized over three years, which is the remaining
term of the lease.

Expenditures for maintenance and repairs are charged to operations as incurred
while renewals and betterments are capitalized. When furniture and equipment are
retired or disposed of, the related costs and accumulated depreciation are
eliminated from the accounts, and any gain or loss on such disposition is
reflected in operations.

Patents

Patents, which are included in other assets in the accompanying balance sheets,
consist of legal fees incurred in securing a patent for the Company's product.
These costs are amortized over a period of seventeen years using the
straight-line method.

Compensated Absences

Employees of the Company are entitled to paid vacations, paid sick days and
holidays off, depending on job classification, length of service and other
factors. An estimate of the liability of the amount of future compensated
absences has been recorded in the accompanying financial statements. The
Company's policy is to recognize the costs of compensated absences when earned
by its employees. The Company does not maintain any unfunded retirement or
health plans.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be "cash equivalents".


<PAGE>   39

Research and Development Costs

The Company accounts for research and development costs incurred in the
development of its software product in conformance with SFAS No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. The
accounting standard requires the capitalization of certain NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)

research and development costs related to the initial program development and
significant program enhancements. All research and development costs incurred in
developing a product prior to reaching technological feasibility are charged to
expense in the period incurred. Upon reaching technological feasibility all
costs are then capitalized as Capitalized Product Development Costs. The Company
incurred such costs during 1999, 1998, 1997 and 1996 after technological
feasibility had been established. During 1999, 1998, 1997 and 1996, the Company
capitalized software development costs in the amount of $26,020, $399,075,
$632,800 and $439,000, respectively.

Capitalized software development costs will be amortized over a period of time
estimated to be the useful life of the product, not to exceed sixty months.

Research and development costs prior to reaching technological feasibility,
routine maintenance, debugging and custom programming costs are charged to
expense in the period in which they are incurred.

Capital Leases

The Company is the lessee of certain equipment under capital leases expiring in
various years through 2001. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The assets are amortized over the lower of their
related lease terms or their estimated productive lives. Amortization of assets
under capital leases is included in depreciation expense.

Income Taxes

Prior to January 1, 1993, the Company had elected to be treated as an "S"
corporation for both federal and California State income tax purposes. The
shareholders of the "S" corporation were taxed on their proportionate share of
taxable income (loss). Effective January 1, 1993, the Company terminated such
election and became taxable as a "C" corporation. The Company will not realize
any future tax benefits of net operating losses incurred prior to January 1,
1993.

The Company accounts for income taxes under the liability method required by
SFAS No. 109 which requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each period end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. The provision for
income taxes represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.


<PAGE>   40

Net Loss Per Common Share

For the year ended December 31, 1997, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 128, "Earnings per Share." Basic and diluted net
loss per share are computed using weighted average common shares outstanding. At
December 31, 1999 and 1998, stock options for 801,998 and

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

650,000 common shares were outstanding. At December 31, 1998, warrants were
outstanding for 83,333 common shares. All of these instruments were not included
in the computation of diluted net loss per common share because the effect in
years with a net loss would be antidilutive.

Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosures of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company's financial
instruments, including cash, accounts receivable, and accounts payable and
accrued expenses, the carrying amounts approximate fair value due to their short
maturities. The amounts shown for notes payable also approximate fair value
because current interest rates offered to the Company for notes payable of
similar maturities are substantially the same.


NOTE 2-CONCENTRATION OF CREDIT RISK

The Company maintained cash accounts at a bank located in southern California.
Accounts at the bank are insured by the Federal Deposit Insurance Corporation
(FDIC) up to $100,000 each. As of December 31, 1999 and 1998, the balances held
at the bank aggregated to $281,867 and $240,892, respectively. The Company has
not experienced any losses in such accounts and believes it is not exposed to
any significant risk regarding cash.


<PAGE>   41

NOTE 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets at December 31 consisted of the
following:

<TABLE>
<CAPTION>
                                1999         1998
                               -------      -------
<S>                            <C>          <C>
Miscellaneous receivables      $            $ 1,643
Deposits                           800
Prepaid expenses                42,064        4,179
Employee advances                             1,275

             Total             $42,864      $ 7,097
</TABLE>


NOTE 4 - FURNITURE AND EQUIPMENT

Furniture and equipment at December 31 consisted of the following:

<TABLE>
<CAPTION>
                                           1999          1998
                                         --------      --------
<S>                                      <C>           <C>
Furniture and equipment                  $117,295      $117,295
Computer hardware and software            179,176       169,887
Equipment held under capital leases        91,889       120,254
Leasehold improvements                      5,249         5,249

                                          393,609       412,685
Less accumulated depreciation and
Amortization                              321,781       274,199

             Total                       $ 71,828      $138,486
</TABLE>

Depreciation expense charged to operations during the years ended December 31,
1999 and 1998 was $54,200 and $61,258, respectively.


NOTE 5 - OTHER ASSETS

Other assets at December 31 consisted of the following:

<TABLE>
<CAPTION>
                                        1999         1998
                                       -------      -------
<S>                                    <C>          <C>
Patents, net of accumulated
amortization of $7,362 and $6,047      $14,993      $16,308
Security deposits                        9,615       15,472

             Total                     $24,608      $31,780
</TABLE>

Amortization expense on patent costs charged to operations during the years
ended December 31, 1999 and 1998 was $1,315 and $1,315, respectively.


<PAGE>   42

NOTE 6 - NOTES PAYABLE AND DEBT RESTRUCTURING

In August 1998, the Company issued unsecured debentures with an aggregate
principal of $167,000. Interest on these notes is payable semiannually at 10%
per annum. These notes mature in August 2000.

In 1998, the Company issued demand notes to two of its shareholders and an
individual investor in the amounts of $25,000, $7,500 and $25,000, respectively.
Interest on each of these notes accrues at 10% per annum. As of December 31,
1999, the outstanding principal balances on these loans were $6,500, $7,500 and
$25,000.

As of December 31, 1998, the Company had four revolving lines of credit with
Wells Fargo Bank that provided for borrowings totaling $270,000. These revolving
lines of credit matured beginning May 10, 1998 through July 10, 1998 and were
collateralized by standby letters of credit issued by certain third parties. The
Company had $270,000 outstanding on these revolving lines of credit as of
December 31,1998.

NOTE 6 - NOTES PAYABLE AND DEBT RESTRUCTURING (Continued)

As collateral for the bank revolving lines of credit, certain third parties (the
"Guarantors") guaranteed the notes payable to the bank by obtaining standby
letters of credit. The Company granted stock options to the Guarantors for the
Company's common stock as consideration for the guarantees. These options
entitled the Guarantors to purchase an aggregate of 300,000 shares of common
stock for $1.13 per share if certain conditions were met. The options became
exercisable at various dates during 1995. None of these options were exercised
as of December 31, 1998, the date of their expiration.

During 1999, the Company restructured the aforementioned debts owed to Wells
Fargo Bank totaling $270,000 and related accrued interest in the amount of
$14,129. The following transactions have been reported in the financial
statements as of December 31, 1999, and result in an aggregated Loss on Debt
Restructuring of $258,271:

On March 5, 1999, the Bank called notes totaling $140,000 which were in default
and exercised Letters of Credit pledged as collateral by certain Guarantors to
satisfy $140,000 of outstanding principal. On January 13, 2000, the Company
issued 200,000 shares of its common stock and granted 150,000 options with an
exercise price of $1.50 per share, expiring July 1, 2001, to these Guarantors in
consideration for the Bank's exercise of these Letters of Credit.

On August 24, 1999, the Company granted 130,000 options of its common stock with
an exercise price of $1.13 per share, expiring July 1, 2001, to the Bank in
satisfaction of the remaining $130,000 of outstanding principal plus all accrued
interest outstanding.


<PAGE>   43

NOTE 7 - OBLIGATIONS UNDER CAPITAL LEASES

Minimum future lease payments under capital leases as of December 31, 1999 for
each of the next five years are:

<TABLE>
<CAPTION>
Years Ending
December 31,

<S>                                                           <C>
2000                                                           17,889
2001                                                           14,886

Total minimum lease payments                                   32,775
Less amount representing interest                               2,837

Present value of minimum lease payment                         29,938
Less current portion of obligations under capital leases       15,188

               Total                                          $14,750
</TABLE>

Interest rates on capitalized leases vary from 9% to 14.89% and are imputed
based on the lower of the Company's incremental borrowing rate at the inception
of each lease or the lessor's implicit rate of return.


NOTE 8 - RELATED PARTY TRANSACTIONS

The Company is obligated under a licensing agreement to a partnership whose
partners are officers, directors and shareholders of the Company. (See Note 10)

The Company repaid a $25,000 short-term promissory note to a shareholder during
1999.


NOTE 9 - INCOME TAXES

The Company has not recorded a current or deferred provision for federal income
taxes for the years ended December 31, 1999 or 1998 due to losses incurred
during those periods. The provision for income taxes represents the minimum
required for state franchise taxes. To reconcile from the federal statutory tax
rate of 34% to the Company's effective tax rate of approximately 1%, the
deferred tax asset valuation reserve is deducted. The net operating loss
carryforwards will be utilized to offset taxable income generated in future
years, subject to the applicable limitations and their expiration in varying
amounts through the year 2019. The Company also had a research tax credit of
approximately $24,970 at December 31, 1998 that expires in 2012. The ability of
the Company to utilize the federal and state net operating loss carryforwards
may be subject to annual limitations under certain provisions of the Internal
Revenue Code. Management has determined that a valuation allowance should be
provided for the net operating losses and the credits to be used to offset
future tax liability.


<PAGE>   44

Deferred tax assets (liabilities) for the years ended December 31, 1999 and 1998
consist of the following:

<TABLE>
<CAPTION>
                                                    1999              1998
                                                 -----------       -----------
<S>                                              <C>               <C>
Deferred tax assets:

Net federal operating loss carryforwards         $ 1,958,444       $ 1,694,219
Net state operating loss carryforwards               316,678           223,219
Research tax credit                                   24,970            24,970

         Total deferred tax assets                 2,300,092         1,942,408

Valuation allowance for deferred tax assets       (2,300,092)       (1,942,408)
</TABLE>

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases its facility and certain equipment under non-cancelable
operating leases expiring at various dates through 2001. Certain leases contain
renewal provisions.

Future minimum lease payments under these leases are as follows:

<TABLE>
<CAPTION>
    Years Ending
    December 31,

<S>                                            <C>
    2000                                         73,113
    2001                                         51,870

                 Total                         $124,983
</TABLE>

Rent expense under operating leases was $46,374 and $131,835 for the years ended
December 31, 1999 and 1998, respectively.

License Agreement

The Company has a licensing agreement with Toomim Research Group ("TRG"), a
partnership, whose partners are officers and shareholders of the Company (see
Note 8). Under the terms of the licensing agreement, the Company is entitled to
exclusive rights to the product under development by the Company, beginning on
August 1, 1993 and ending on August 1, 2013, unless terminated earlier. As
consideration for the exclusive rights to the product, the Company pays TRG a
royalty.


<PAGE>   45

The royalty is payable quarterly under the following terms:

* The Company shall pay a royalty on the lesser of 10%, of total revenue or $30
per patient examined and reported upon up to the first 10,000 examinations.
After the first 10,000 examinations, the Company shall pay a royalty of 5% of
total revenue but not less than $12.50 per patient examined and reported upon.

* The Company shall pay a royalty of 5% of total revenue for each sale, lease,
rental, license, transfer, or assignment of the product under license to the
extent that no royalty was paid on such total revenue.

* The Company shall pay a royalty of 3% of total revenue for any derivative
technology developed by the Company to the extent that no royalty was paid on
such total revenue.


NOTE 11 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses at December 31 consisted of the following:

<TABLE>
<CAPTION>
                                1999          1998
                              --------      --------
<S>                           <C>           <C>
Accounts payable              $117,475      $127,297
Accrued salaries               127,178        35,045
Payroll taxes payable                        166,396
Customer deposits               11,274
Accrued vacation payable        41,490        34,468

             Total            $297,417      $363,206
</TABLE>

NOTE 12 - SHAREHOLDERS' EQUITY

On May 4, 1994, the Board of Directors authorized a two-for-one stock split of
the Company's common stock for shareholders as of that date. As a result of the
split, 2,190,660 shares were issued. All references in the accompanying
financial statements to the per share amount have been restated to reflect the
stock split.

In 1996, the Company settled its obligation to pay $100,000 in connection with
services rendered in 1995 for 100,000 shares of common stock and issued 25,000
shares of its common stock for debt totaling $50,000.

In 1996, the Company also issued to note holders 42,000 shares of common stock
valued at $75,600 as consideration for the note holders extending the repayment
terms pursuant to the terms of the note agreement.


<PAGE>   46

In 1997, the Company sold 480,000 shares of common stock for gross proceeds of
$1,200,000. In connection with this issuance of common stock, investors also
received 120,000 warrants to purchase common stock at $3.00 per share through
April 16, 1998.

In 1999, the Company sold 462,000 shares of common stock for net proceeds of
$704,874. The Company issued 145,000 shares of common stock in conjunction with
the reclassification of $145,000 received and recorded in 1998 as Paid in
Capital. Additionally, the Company issued 200,000 shares of common stock, valued
at $1.13 per share in conjunction with the Company's debt restructuring. (See
Note 6)


NOTE 13 - STOCK OPTIONS AND WARRANTS

Warrants

As of December 31, 1999 and 1998, the Company had no outstanding warrants.

Stock Option Plan

The Company adopted the 1997 Stock Option Plan (the "1997 Plan") in December
1997. The purpose of the 1997 Plan is to attract, retain, and motivate certain
key employees of the Company by giving them incentives which are linked directly
to increases in the value of the common stock of the Company. Each director,
officer, employee, or consultant of the Company is eligible to be considered for
the grant of awards under the 1997 Plan. The maximum number of shares of common
stock that may be issued pursuant to awards granted under the 1997 Plan is
1,000,000, subject to certain adjustments to prevent dilution. Any shares of
common stock subject to an award, which for any reason expires or terminates
unexercised, are again available for issuance under the 1997 Plan. (See Note 15)

Stock Option Agreements

Options and warrants were granted, which under certain agreements, allows
employees, consultants, and Guarantors to purchase shares of common stock, which
were issued outside the 1997 Plan. These options expire upon certain events.


<PAGE>   47

NOTE 13 - STOCK OPTIONS AND WARRANTS (Continued)

The following summarizes the Company's stock option transactions under the stock
option agreements:


<TABLE>
<CAPTION>
                                  1997              Weighted-             Other              Weighted-
                                  Stock              Average              Stock               Average
                                 Option              Exercise            Options &            Exercise
                                  Plan                Price              Warrants              Price
                                --------             --------            --------             --------
<S>                             <C>                 <C>                  <C>                 <C>
Options outstanding,
December 31, 1997                280,000             $   1.98             742,000             $   1.23

  Expired                       (280,000)            $     --            (472,000)            $     --
  Granted                        305,000             $   1.13              75,000             $   0.10

Options outstanding,
December 31, 1998                305,000             $   1.13             345,000             $   1.07

Reclassifications                 40,000             $   1.50             (40,000)
Cancelled                                                                (270,000)
Granted                           40,000             $   1.50             381,998             $   1.24

Options outstanding,
December 31, 1999                385,000             $   1.21             416,998             $   1.15

Options exercisable,
December 31, 1998                     --             $   1.13             175,000             $   1.07

Options exercisable,
December 31, 1999                360,000             $   1.19             266,998             $   0.95
</TABLE>

The remaining weighted-average contractual life of options outstanding at
December 31, 1999 and 1998, was 4.94 years and 1.25 years, respectively.


<PAGE>   48

NOTE 13 - STOCK OPTIONS AND WARRANTS (Continued)

The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies Accounting Principles
Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for its plans and does not recognize
compensation expense for its stock- based compensation plans. If the Company had
elected to recognize compensation expense based upon the fair value at the grant
date for, awards under these plans consistent with the methodology prescribed by
SFAS No. 123, the Company's net loss and loss per share would be increased to
the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                       For the Years Ended
                                          December 31,
                            ---------------------------------------
                                 1999                      1998
                            -------------             -------------
<S>                         <C>                       <C>
Net Loss
     As reported            $  (1,091,866)            $    (793,195)
     Pro forma              $  (1,091,866)            $    (803,195)

Loss per share
     As reported            $       (0.11)            $       (0.09)
     Pro forma              $       (0.11)            $       (0.09)
</TABLE>

These pro forma amounts may not be representative of future disclosures because
they do not take into effect pro forma compensation expense related to grants
made before 1995.


NOTE 14-PRIOR PERIOD ADJUSTMENTS AND RESTATEMENTS

       Certain adjustments defined as corrections of accounting errors and
change in accounting methods, the nature and amount of which has been detailed
in the following schedule, resulted in an understatement of assets, net income
and stockholders equity in prior years.

       Prior Period Adjustment During 1998, outdated and outstanding checks in
the amount of $7,170 were voided, resulting in the understatement of assets and
overstatement of the accumulated deficit. The change as of December 31, 1998 is
summarized as follows:

<TABLE>
<CAPTION>
                                                                   Accumulated
                                              Assets                 Deficit
                                            -----------            -----------
<S>                                         <C>                    <C>
As previously reported                      $ 1,503,660            $(4,628,126)
Void outdated/outstanding checks                  7,170                  7,170

As adjusted                                 $ 1,510,830            $(4,620,956)
</TABLE>

NOTE 15-SUBSEQUENT EVENTS

Subsequent to the balance sheet date, the Company had the following significant
financial transactions:

In January 2000, the Company's name was changed to MPR Health Systems, Inc.


<PAGE>   49

On January 13, 2000, the Company issued 300,000 shares of common stock at a
price of $0.10 per share to the Company's CEO in conjunction with his employment
agreement.

On January 13, 2000, the Company issued 200,000 shares of common stock and
150,000 stock options exercisable at $1.50 per share to individuals known as
"The Paterson Group" in consideration of The Paterson Group's repayment of debt
owed by the Company. (See Note 6)

Effective January 21, 2000, the Company approved American Securities Transfer
and Trust as transfer agent and registrar of the Company.

Effective January 21, 2000, the Company approved Northern Bank Note share
certificate No. 438, color Special Green, as the Company's new share
certificate.

In January 2000, the Company's "1997 Stock Option Plan" was amended to increase
the number of common shares which may be issued under the plan to 2,250,000.

In January 2000, the Company's Board of Directors resolved that 200,000 stock
options be allocated to settle any potential legal claims resulting from an
aborted merger with Charrington Business Consultants.

<PAGE>   50

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number         Exhibit Description
-------        -------------------
<S>            <C>
    3.1        Amended and Restated Articles of Incorporation of Registrant.
               Incorporated by reference to Exhibit 3.1 to Form SB-2 filed on
               January 6, 1997, and the amendments thereto.

    3.2        Bylaws of Registrant.+

   10.1        Form of Registrant's Indemnification Agreement. Incorporated by
               reference to Exhibit 10.1 to Form SB-2 filed on January 6, 1997,
               and the amendments thereto.

   10.2        Licensing Agreement, dated October 31, 1993, by and between
               Registrant and Toomim Research Group, as amended. Incorporated by
               reference to Exhibit 10.2 to Form SB-2 filed on January 6, 1997,
               and the amendments thereto.

   10.3        Securities Purchase Agreement, dated December 23, 1994, by and
               among Registrant, OMERB, Gerald Appel and Hershel Toomim.
               Incorporated by reference to Exhibit 10.3 to Form SB-2 filed on
               January 6, 1997, and the amendments thereto.

   10.4        Securities Purchase Agreement, dated August 18, 1995, by and
               among Registrant, OMERB and Gerald Appel. Incorporated by
               reference to Exhibit 10.4 to Form SB-2 filed on January 6, 1997,
               and the amendments thereto.

   10.5        Lease Agreement, dated August 1, 1996, by and between Registrant
               and The Urcis Family Trust. Incorporated by reference to Exhibit
               10.11 to Form SB-2 filed on January 6, 1997, and the amendments
               thereto.

   10.6        Master Equipment Lease Agreement, dated March 1, 1996 by and
               between Registrant and Medical Consulting Imaging Co., and
               Distribution Agreement, dated March 1, 1996, by and among
               Registrant, Medical Consulting Imaging Co. and MCIC/HNI.
               Incorporated by reference to Exhibit 10.16 to Form SB-2 filed on
               January 6, 1997, and the amendments thereto. Termination of
               Distribution Agreement, dated February 23, 1998.

   10.7        1997 Stock Option Plan.+

   10.8        Amendment Number Three, Waiver and Consent between Toomim
               Research Group and Myo Diagnostics, Inc. Incorporated by
               reference to Exhibit 10.20 to Form 10-KSB filed on July 9, 1998.

   10.9        Certificate of Amendment of Articles of Incorporation.

   10.10       Employment Agreement, dated January 1, 1999, by and between
               Registrant and Gerald D. Appel.

   24.1        Power of Attorney (included on signature page).

   27.1        Financial Data Schedule.
</TABLE>

--------------------
+ Previously Filed